Vietnam to Implement Multiple FTA Tariff Cuts in 2018

Vietnam’s Ministry of Finance has announced 10 draft decrees on preferential tariff rates for 2018-2020 related to its 10 Free Trade Agreements (FTAs). Most of the goods will enjoy a zero percent import tariff in effect from January 1, 2018, in line with the country’s commitments within the FTAs framework, while others will go through a gradual reduction until 2022. With reduced tariffs leading to a reduction in import tax revenues, the government aims to offset it by an increase in domestic tax collection.

Under ATIFA, Vietnam has already cut 6,900 tariff lines, or 72 percent of all tariff lines, to zero percent in 2014. It reduced more than 1,700 other lines to zero percent in 2015. By 2018, Vietnam is committed to removing all import tariffs.

Other FTAs such as the ASEAN – Korea, ASEAN – Japan (AJCEP), ASEAN – India (AIFTA), ASEAN – Australia – New Zealand, and Vietnam – Chile will progressively reduce tariffs to zero percent by 2022. For example, under the AJCEP, the existing five percent import tax rate for various commodities will reduce to zero percent by 2019. Similarly, under AIFTA, items having current import tax rates between 1 to 3 percent will be subjected to zero percent import tariffs by 2019. Under the AIFTA and VKFTA, current import tax rates ranging from 10 to 20 percent for certain commodities will see a gradual reduction to zero percent by 2022.

Exporters will continue to benefit from the reduced tariffs, leading to a deeper economic integration. This will further lead to an increase in foreign investments, competition, production, and business efficiency. In addition, this will also reduce the input cost for domestic firms.

As for the State budget, tariff commitments in the last decade have affected the annual growth rate of State Budget revenues of the customs. The average rate of collection increased annually by 10 percent from 2007-2014, while in 2015 and 2016, the growth rate was only 3.6 percent and 3.8 percent respectively. However, the increase in imports/exports and subsequent reduction in import tax revenues will be offset by an increase in domestic tax collection such as corporate and personal income tax.